Our main debt problem is a household debt problem

Household debt > national debt. On Saturday, I wrote a post about whether George Osborne has managed to rebalance the economy. I mentioned credit card debt there, as I was trying to be selective with my statistics, but really that’s just a subset of a subset of a subset. The full scale of household debt in the UK is shown by the bars in the above graph. It hit £1,695 billion – or £1.7 trillion – last year. By way of comparison, the Government’s debt is expected to reach £1,480 billion in this financial year.

We tried fixing our ways… Household debt grew by 154 per cent in the decade to 2007. But then the financial crisis happened, and people responded accordingly. Between 2007 and last year, the level of household debt remained more or less flat. Or if you look at it as a proportion of disposable income –shown by the pink line in the above graph – it actually declined. Brits took control of their own finances in a way that Osborne couldn’t with the nation’s over this Parliament.

…and failed. But what’s this? The Office for Budget Responsibility’s forecasts for the next five years have household debt rising to new, vertiginous heights. They reckon that it will stand around £2,446 billion in 2019, which is 44 per cent higher than now, or a full 171 per cent as a proportion of disposable income. As a scary recent report from McKinsey pointed out, this doesn’t quite put us at the maxed-out levels of, say, Denmark or Norway – but we’re still one of the most indebted populations in the world. As economic confidence returns, so does our old urge to reach for the plastic.

If you want to buy a house, then you have to be able to afford a deposit for it.

If you think you want yet another store credit card, then think twice about it.”

Hm. Hasn’t quite worked out like that, has it? The Tory leadership left the theme of “responsibility” at the door when they first entered Number 10. Just consider the policies: Help to Buy, Funding for Lending, low interest rates… all have helped to boost borrowing, and all have helped to boost our current growth rates. As I said in my post on Saturday, our economy is being pushed along by consumption, whether of houses or of high-street products. We’re borrowing to spend, and spending to grow.

…and its end times. One of the darkest questions hovering over our economy is how things will stack up when interest rates rise. The Bank will surely increase them slowly, to give people time to adjust. But, with so much debt sloshing around the system, we could still be caught out. Are we experiencing true prosperity? Or just the illusion of it?